Jacko Co.is a U.S.based MNC with net cash inflows of Singapore dollars and net cash inflows of Sunland francs. These two currencies are highly negatively correlated in their movements against the dollar. Kriner Co.is a U.S.based MNC that has the same exposure as Jacko Co.in these currencies,except that its Sunland francs represent cash outflows. Which firm has a high exposure to exchange rate risk
A) Jacko Co.
B) Kriner Co.
C) the firms have about the same level of exposure.
D) neither firm has any exposure.

Question

Jacko Co.is a U.S.based MNC with net cash inflows of Singapore dollars and net cash inflows of Sunland francs.  These two currencies are highly negatively correlated in their movements against the dollar.  Kriner Co.is a U.S.based MNC that has the same exposure as Jacko Co.in these currencies,except that its Sunland francs represent cash outflows.  Which firm has a high exposure to exchange rate risk
A) Jacko Co.
B) Kriner Co.
C) the firms have about the same level of exposure.
D) neither firm has any exposure.

Quizplus · Accepted Answer

Kriner Co. has a high exposure to exchange rate risk because it has cash outflows in Sunland francs, which means that any depreciation of the franc against the dollar will result in higher costs for Kriner Co. On the other hand, Jacko Co. has net cash inflows in both currencies, which means that any fluctuations in the exchange rates will have offsetting effects on the company's cash flows, reducing its exposure to exchange rate risk.

Jacko CoIs a U